Intersectoral labor reallocation: the impact of digital finance on rural non-agricultural employment

This study explores how digital finance (DF) influences the reallocation of rural labor from agriculture to non-agricultural sectors using a theoretical framework based on comparative advantage theory. Utilizing micro-level data from China’s Yellow River basin, fractional logit model and control function approach are used to assess DF’s impact on farmers’ non-agricultural employment (NAE) and allocative efficiency. Results indicate that DF significantly boosts NAE. It is observed that DF influences only the wage employment of farmers, not self - employment. DF allows agriculturally advantaged farmers to stay in agriculture while aiding less productive farmers in transitioning to NAE, aligning with Pareto efficiency. Our analysis shows that higher total factor productivity (TFP) among farmers enhances DF’s capacity to promote land transfer-in, expand cultivated land, and boost agricultural income, indicating that DF can also enhance factor allocation within the agricultural sector. Finally, urbanization accelerates the labor reallocation effect of DF.